Australia’s S&P/ASX 200 Index (ASX: XJO) is tipped to open higher on Thursday, with QBE Insurance (ASX: QBE), Baby Bunting (ASX: BBN), and Microsoft (NASDAQ: MSFT) shares making headlines.
What you missed
On Wednesday, the ASX 200 finished off its lows for the day, falling 1.3%, as both Victoria and several US states hit record COVID-19 case levels, denting market sentiment. BHP Group Ltd (ASX: BHP) and CSL Limited (ASX: CSL) were the cause of half the fall, down 3.4% and 3.6% respectively. As the largest holdings in the index, global investors moving to a risk-off position drove the fall. To learn why BHP and CSL are some of the largest holdings in the ASX 200, and why they move the index as much as they do, check out this article or watch the video below:
US markets bucked the trend overnight, the S&P 500 finishing 0.6% higher, as the White House announced their intention to extend their own ‘JobKeeper’ stimulus. Geopolitical risk continues to accelerate with the US Government ordering the closure of the Chinese Consulate in Houston, stoking a move back to more defensive businesses, like drugmaker Pfizer Inc. (NYSE: PFE).
The export-driven Euro Stoxx 50 weakened, down 1.0%, with carmakers and consumer-facing businesses, like travel booking software Amadeus IT Group SA (BME: AMS) falling 3.4%, among the hardest hit.
In a sign of how powerful economic shutdowns can be, it’s been estimated that Victoria’s current restrictions could see September GDP growth contract by as much as 0.75%.
Why I’m avoiding the insurance sector
QBE Insurance Group Ltd (ASX: QBE) stayed true to form, announcing a $750 million loss for the financial year. It cited a number of complex reasons for the loss, ranging from ‘adverse catastrophe experience’ for $60 million and adverse prior accident claims for $120 million. In my view, insurance companies should be placed alongside airlines as the worst sectors for investors. The combination of unexpected events and the need to generate ever-higher returns from customer premiums mean it is one sector to avoid.
As a regular customer of Baby Bunting Ltd (ASX: BBN), I wasn’t surprised to see revenue increase 11% to $405 million for the year, nor the 39% increase in online sales. Interestingly, online sales represent just 14% of total sales for the businesses, a statistic I highlighted previously in this column. Compare this to say iRobot Corporation (NASDAQ: IRBT), the maker of the popular Roomba vacuum, where 70% of sales came from e-commerce.
Microsoft continues to grow
Microsoft (NASDAQ: MSFT) was the latest business to report earnings, delivering a 13% increase in revenue for the quarter, to US$38 billion, above analyst estimates. The company’s Intelligent Cloud business continued its stellar recent run, adding 17% in revenue, whilst the Azure platform, which drives the new Office 365 and Sharepoint platforms, slowed slightly, growing 47% from 59% in the previous quarter; still a solid result.
Microsoft’s incredible performance has seen the company add US$800 billion in market cap, to US$1.6 trillion, in the last three years and is now worth the equivalent of the entire Korean stock market. At a time when the profits of most companies are highly uncertain, the near-certainty of Microsoft’s growth trajectory is a welcome relief.
Finally, ex-Macquarie toll road owner Atlas Arteria Group (ASX: ALX) provided an update on traffic numbers, with a better than expected 51.2% fall on the same quarter of last year. Importantly, the French and German assets were off just 15% and 5% on 2019 comparable. In my view, toll roads offer a more attractive exposure to the recovery than other infrastructure assets like airports.
This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.